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Wine: A blow to Virginia's largest winery

By Dave McIntyre

The economy has taken a toll on the Virginia wine industry this month as Kluge Estate winery near Charlottesville has been taken over by its bank, which appears determined to sell off the winery’s vineyards, inventory and property at auction. Sweeley Estate winery in Madison, north of Charlottesville, is also in foreclosure and several wineries are said to have decided to sell off their grapes this year rather than make wine because of high inventories of unsold wine.

The foreclosure and bank seizure are the latest setback for Patricia Kluge and her husband, William Moses, who established the winery in 1999 on several hundred acres of land not far from Monticello, where Thomas Jefferson struggled to establish Virginia’s wine industry more than 200 years ago.

If Farmers Bank of the Virginias has its way in selling off Kluge Estate, it will deal a severe setback to the Virginia wine industry. With 164 acres under vine, Kluge Estate is not only Virginia’s largest winery, but Kluge and Moses have been outspoken in their ambition to build the company into a powerhouse with national distribution for its Kluge SP sparkling wines, New World Red blend and Albemarle wines. A Kluge fire sale will send the message that Virginia’s wine industry is not ripe for outside investment.

In a phone interview Tuesday, Moses acknowledged that the winery was a victim of overextension and bad timing, given the economic collapse.

“Between the planting and the winemaking we invested a lot of money, including high-priced consultants such as Michel Rolland and Laurent Champ, as well as a national sales force,” Moses said. “There is no doubt we overleveraged the company.”

Kluge and Moses gambled on their plan of national expansion in 2007, taking out nearly $35 million in loans to cover their costs and securing the loans with their personal fortunes, Moses said. (Kluge is the former wife of the late billionaire John Kluge, while Moses is a former IBM executive.) Sales proved difficult, however, and the winery began to seek a national partner with an established distribution system.

The collapse of the economy sent potential partners into hiding, and made the bank less patient. That patience ran out several weeks ago when the bank called the loans and took control of the winery. Much of the staff was fired, and the bank filed papers last Friday to sell off the estate and winery at auction.

“The first thing they did was let all the sales people go, and then they started dismantling everything,” Moses said. “The question to a prospective buyer then is, ‘what am I buying?’ “
Details of the lawsuit were reported last weekend by Charlottesville outlets C-Ville Weekly and TheHook.com. Up for sale at auction on Dec. 8 are the entire 900-acre estate in Albemarle County, including the vineyards, winery, Farm Shop, assorted buildings and offices, and Kluge’s carriage house museum. A separate auction has been scheduled for Dec. 11 to sell off 15,000 cases of Kluge Estate wine, including the 2005 New World Red blend.

The Sweeley Estate auction is set for Nov. 18, the Charlottesville Daily Progress reported.

Until the Kluge auctions take place, Moses vowed that he and Kluge will continue to seek new partners to help pay off the debt and keep the winery alive. (He would not comment on rumors that Donald Trump is a potential buyer.)

“The first goal is to save the winery,” Moses said. “The second is to get the bank as much money as possible to reduce our obligation as guarantors of the loans.”

He acknowledged though that the bank’s objectives may not be in the same priority.

“They are taking a fast lane toward liquidation,” he said. “We think a slower lane will get more value, but in the end it’s their decision.”

-- Dave McIntyre

By Dave McIntyre  | November 5, 2010; 8:00 AM ET
Categories:  Wine  | Tags:  Dave McIntyre, wine  
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Comments

Well, as someone who's had a lot of VA wines, I can't say I'll miss them. It was a shockingly presumptuous place, with exorbitant tasting fees way out of line with its local competition and also out of line with the quality of the wines.

It'll be a tragedy if those vines are torn up, but using the existing stock and replacing the company with someone less snooty would be a welcome change.

Posted by: Section406 | November 4, 2010 12:27 PM | Report abuse

I believe Kluge may have one of the largest winery owned vineyards, but they are not one of the largest wineries. Chateau Morrisette (my employer) and Williamsburg have the largest production capacity and sales. Both of us produce >60,000 cases.

Posted by: wineybob | November 4, 2010 2:12 PM | Report abuse

Is the Sweely Estate Auction still happening?...

http://www.tranzon.com/Propertydetail.aspx?id=8014

"Auction cancelled" is in the top right where it has the date and time.

Posted by: ANewVine | November 7, 2010 9:23 PM | Report abuse

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